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Executive MovesFidelity Clearing Canada Names Henderson Chief Executive ............. 4

Week in ReviewTax-Credit Bond Guidance................. 6

Rethink Retirement: Krawcheck .... 6

Regulation & ComplianceExecs’ Cross-Border Concerns ....... 8

DOL to Require More

Target-Date Fund Information ....... 27

Sales & MarketingPost-Recession Distribution Strategies From kasina CEO ........... 12

Ops & TechNew Derivatives Regs Threaten Added Back-Offi ce Layers ..............13

Expert Service Providers Aid in Manager-of-Manager Model ......... 14

International OutlookHedge Fund Investors Look to Liquidity of Emerging Markets .......19

Mutual Fund Scorecard ............31

Source: FRC IMPACT database

With the return of equity markets in 1Q10, internation-al equity funds drove industry sales, led by long-term international equity mutual funds. Long-term interna-tional equity funds led all categories with net infl ows of $28 billion for 1Q10. Also, long-term domestic equity funds began the year with strong net infl ows of about $11 billion. ETFs trailed behind long-term funds in 1Q10, with international equity ETFs posting net outfl ows of nearly $1.3 billion and domestic equity ETFs posting net outfl ows of $2.5 billion.

Source: Financial Research Corp.

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Management Leaders

May 3, 2010 | Volume 18 • Number 18 | www.mmexecutive.com | feedback-mme@sourcemedia.com

Fuss: Interest Rate PolicyWill Shape Recovery

Raising the Bar:

By Robert L. ReynoldsPresident and Chief Executive O� cer

Putnam Investments

Retirement Self-StartersThe Case for Extending Automatic IRAs

to America’s 78 Million UnpreparedWASHINGTON—� e Retirement Savings Project, a

leading policy research group backed by � e Brookings Institution, � e Heritage Foundation and Georgetown University, and af- � liated with FINRAand the AARP, is advocating new ap-proaches for de� ned contribution plans, Social Security and tax policies to insure Americans’ re-tirement future.

David C. John, deputy director of � e Retirement Se-curity Project and a frequent Congressional witness, sat down with Money Management Executive Editor Lee Bar-ney to discuss new laws and regulations that will reshape 401(k) plans and o� er new challenges and opportunities

� e more things change, the more they remain the same. In the early 1980s,

the na-tion faced a serious

retirement challenge, with Social Security estimated to have unfunded liabilities of about $6 trillion and wor-

VALUATIONSIN THE CROSSHAIRS

BENNA LOOKS INTO THE 401(k) FUTURE

REITS’ SWEET SPOT

AUTOMATIC IRAs, cont. on page 23

BOSTON–Longtime industry veteran Dan Fuss, the 76-year-old vice chairman and managing direc-tor of Loomis, Sayles & Co., knows that the Federal Reserve has to raise interest rates eventually. � is could dramatically a� ect credit spreads, yield curves and other macroeconomic issues. But until such

a move takes place, there is no need to get excited.

With the advantage of more than 52 years of experience in the � nancial industry, Fuss sees many similarities to previous recoveries and believes a careful, measured approach can po-sition his � rm and shareholders for long-term suc-cess.

INTEREST RATES, cont. on page 26RETIREMENT SECURITY,

cont. on page 28

Three Steps to Improving Retirement Security

Performance

CoverStory

Regulation & Compliance

18 10 20

Robert L. Reynolds

Net Flows ($ in Billions)

-$100

-$80

-$60

-$40

-$20

$0

$20

$40

$60

$80

$100

Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10

Long-Term Equity ETF Equity

Long-Term Intl Equity ETF Intl Equity

Long-Term and ETF Equity FundsNet Flows ($ in Billions)

David C.John

MME050310_page01 1 4/29/2010 6:45:49 PM

Growth Trajectory: The Increasing Popularity ofThe Manager-of-Managers Investment Model

By Fred Naddaff, Head of Fund Services, North America, Citi

It’s an unmistakable market reality: asset managers have recognized they can no longer be all things to all people. They have come to the realization that

they cannot always develop every aspect of the ever-broadening range of increasingly complex portfolio products that their cli-ents demand. As a result, more and more are leveraging their internal capabilities in conjunction with external niche-market expertise by implementing a manager-of-managers (MoM) invest-ment model.

In brief, a manager-of-managers is an investment advisor who hires other professional investment managers, or sub-advisors, to oversee specific aspects of an investment portfolio. A MoM typically focuses more on the manufactur-ing and distribution of a product, rather than the actual management of the assets. This role is left to the sub-advisors on an outsourced basis whereby the best man-agers can be leveraged for their particular area of investment expertise. The MoM dynamic creates a symbiotic relationship between both investment advisor and sub-advisor where distribution and manufac-turing strengths are aligned with specific investment strategy expertise.

The rationale underpinning the MoM approach is that diversification and balance among portfolios of sector-focused or complex investments can be achieved more readily and cost-effec-tively by having a group of specialists, instead of a single manager executing the fund’s strategy. The MoM assembles a group of investment experts, closely monitors their performance and alters the composition of the team to adapt to market conditions, overall fund perfor-mance, as well as the performance of the individual sub-advisors.

A Dynamic Market

The multi-manager structure has be-come increasingly popular in the asset management marketplace, particularly over the past several years. According to Financial Research Corporation (FRC), sub-advised products comprised $731 billion in ’40 Act mutual funds in 2008 and are projected to reach $1.4 trillion by 2014—forecasting a 12% CAGR since the

market downturn of 2008.At Citi, we believe four factors

contribute to the increased at-tractiveness of the MoM model:

• The acquisition of expertise and performance – Faced with the prospect of deciding to build, buy, or rent, many asset manag-ers have chosen the rent option, allowing them to fill both prod-

uct and performance gaps in the most expe-dited and cost efficient manner possible.

• The retirement market – Given the negative effect the last 24 months have had on the public’s retirement nest-egg, people are working longer and saving more. As a result, the retirement market and its sticky assets are viewed as a huge opportunity. The associated demand for asset-alloca-tion and target-date products, combined with the continued importance of open-architecture distribution, have made the sub-advised model even more attractive.

• The convergence between traditional and alternative asset managers – As tradi-tional retail fund managers have opened up to non-traditional strategies, the expertise required to run these strategies is typically not available in-house. Recent examples in-clude 130/30, absolute-return, and managed payout strategies, which usually require so-phisticated hedging capabilities often out-sourced via a sub-advised relationship.

• An increased demand for diversifi-cation – Tactical global asset-allocation funds, with their “go anywhere” mandate, have become increasingly popular, as have funds-of-funds and international funds, particularly those focusing on emerging markets. The jurisdiction expertise re-quired to effectively run these funds is an-other opportunity that can take advantage of a sub-advised model.

Role of the Service Provider

In the MoM model, the investment advi-sor’s responsibilities not only include iden-tifying, developing and maintaining distri-bution partners, but have been broadened in scope to include robust manager selection, asset allocation and risk management. Just as investment advisors look to sub-advisor specialists to complement their investment capabilities, so, too, should they consider a third-party provider to deliver the adminis-tration services required in this increasingly complex marketplace.

By selecting the right partner, the MoM will be able to supplement the strength of their offering by leveraging the subject matter expertise and focus that a third party service provider can offer. A com-bination of thought leadership, continued technology investments and deep experi-ence delivered by the third-party service provider enables the MoM to remain focused on developing and distributing products.

Given the additional oversight respon-sibilities and associated risk mitigation concerns, when reviewing a service pro-vider’s credentials, MoMs should select a provider with robust capabilities:

• High-touch service model – A MoM client is not one-dimensional. Both the investment advisor and the sub-advisor(s) require constant and consistent access to a service team that knows the MoM’s port-folio, how it is constructed, and how the

Ops &Tech

MoM and the sub advisor(s) interact. • Manager on-boarding support –

dedicated team who provides administrative setup services, systems configuration and entitlements, service integration and documentation, as well as ongoing support to optimize operations and pricing.

• Transition management –ing an investment portfolio’s securities mix with another should be a seamless and transparent process. Service provider alignment with extensive global markets expertise is critical.

• Portfolio analytics – analyze performance at the portfolio, sub-advisor, strategy and security levels in order to provide key measures and metrics to enable a continuous monitoring of sub-advisor benchmarking.

• Technology as an enabler – information portal with holistic visualization capabilities should provide both the investment advisor and the sub-advisor access to all relevant information delivered in real-time with multiple perspectives and formats.

• Transparency – culture is essential in providing the investment manager with additional levels of safety and soundness surrounding all trading and reporting activities. The service provider needs to understand the ever-changing regulatory landscape in order to better understand the challenges and opportunities faced by the MoM.

• Integrated Service Suite – maximize the total experience, all services should be fully integrated into the core offerings of fund accounting, fund administration, transfer agency, custody, securities lending, middle office and regulatory administration.

Strong Growth Prospects

At Citipects for the future growth of the MoM investment structure. In our analysis of the marketplace, we believe the following trends support the continued popularity of a multi-manager product:

• With 2010’s 12-month total returns on equity funds looking good, the lure of the

Fred Naddaff

14 Money Management Executive May 3, 2010

MME050310_page14 9 4/29/2010 1:47:28 PM

Growth Trajectory: The Increasing Popularity ofThe Manager-of-Managers Investment Model

• An increased demand for diversifi-cation – Tactical global asset-allocation funds, with their “go anywhere” mandate, have become increasingly popular, as have funds-of-funds and international funds, particularly those focusing on emerging markets. The jurisdiction expertise re-quired to effectively run these funds is an-other opportunity that can take advantage

Role of the Service Provider

In the MoM model, the investment advi-sor’s responsibilities not only include iden-tifying, developing and maintaining distri-bution partners, but have been broadened in scope to include robust manager selection, asset allocation and risk management. Just as investment advisors look to sub-advisor specialists to complement their investment capabilities, so, too, should they consider a third-party provider to deliver the adminis-tration services required in this increasingly

By selecting the right partner, the MoM will be able to supplement the strength of their offering by leveraging the subject matter expertise and focus that a third party service provider can offer. A com-bination of thought leadership, continued technology investments and deep experi-ence delivered by the third-party service provider enables the MoM to remain focused on developing and distributing

Given the additional oversight respon-sibilities and associated risk mitigation concerns, when reviewing a service pro-vider’s credentials, MoMs should select a provider with robust capabilities:

• High-touch service model – A MoM client is not one-dimensional. Both the investment advisor and the sub-advisor(s) require constant and consistent access to a service team that knows the MoM’s port-folio, how it is constructed, and how the

MoM and the sub advisor(s) interact. • Manager on-boarding support – A

dedicated team who provides administra-tive setup services, systems configuration and entitlements, service integration and documentation, as well as ongoing sup-port to optimize operations and pricing.

• Transition management – Replac-ing an investment portfolio’s securities mix with another should be a seamless and transparent process. Service provider alignment with extensive global markets expertise is critical.

• Portfolio analytics – The ability to analyze performance at the portfolio, sub-advisor, strategy and security levels in or-der to provide key measures and metrics to enable a continuous monitoring of sub-advisor benchmarking.

• Technology as an enabler – A robust information portal with holistic visualiza-tion capabilities should provide both the investment advisor and the sub-advisor access to all relevant information deliv-ered in real-time with multiple perspec-tives and formats.

• Transparency – A compliance-based culture is essential in providing the in-vestment manager with additional levels of safety and soundness surrounding all trading and reporting activities. The ser-vice provider needs to understand the ever-changing regulatory landscape in order to better understand the challenges and opportunities faced by the MoM.

• Integrated Service Suite – In order to maximize the total experience, all services should be fully integrated into the core of-ferings of fund accounting, fund admin-istration, transfer agency, custody, securi-ties lending, middle office and regulatory administration.

Strong Growth Prospects

At Citi, we are optimistic about the pros-pects for the future growth of the MoM investment structure. In our analysis of the marketplace, we believe the following trends support the continued popularity of a multi-manager product:

• With 2010’s 12-month total returns on equity funds looking good, the lure of the

equity market’s upside should have inves-tors putting their allocations back in place. As a result, investors will start moving out of money markets and other fixed income assets. However, to avoid concentration risk, they are seeking to diversify and are looking at more complex equity products, such as those encompassing international markets, hedging strategies and more esoteric securities -- investment expertise that is not readily available in most asset management shops.

• Continued growth in the retirement space in general, with greater application of asset-allocation products. The retire-ment space is expected to grow $5 trillion by 2014 (see Cerulli Associates graph), with target-date funds being the vehicle of choice, a product uniquely situated to take

advantage of the MoM model. • As more managers target DC plans

and RIA assets, product-neutral, open-ar-chitecture platforms offering best-in-breed products will continue to become more important. The MoM model is particu-larly well-positioned to take advantage of this space, as the use of unaffiliated asset managers in a plug-and-play model allows for efficient adding and replacing of the re-quired investment strategy expertise.

In summary, to succeed in these new market conditions, we believe that fund managers will continue to adopt a MoM in-vestment model—leveraging their in-house capabilities with the external niche exper-tise of sub-advisors and third party service providers—for the bottom-line benefits of their firms and their clients. MME

May 3, 2010 Money Management Executive 15

MME050310_page15 10 4/29/2010 1:47:14 PM

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